8182 Maryland Assoc., v. Sheehan

• Decision Date: 07 March 2000
• Citation: 14 S.W.3d 576
• Parties: (Mo.banc 2000) . 8182 Maryland Associates, Limited Partnership, Appellant, v. Kathryn Sheehan, Administratrix for the Estate of Richard Sheehan, et al., Respondents. Case Number: SC81647 Supreme Court of Missouri Handdown Date: 0
• Court: Missouri Supreme Court

14 S.W.3d 576 (Mo.banc 2000)

This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court.

8182 Maryland Associates, Limited Partnership, Appellant, v. Kathryn Sheehan, Administratrix for the Estate of Richard Sheehan, et al., Respondents.

Case Number: SC81647

Supreme Court of Missouri

Handdown Date: 03/07/2000

Appeal From: Circuit Court of St. Louis County, Hon. Robert G. J. Hoester

Counsel for Appellant: John S. Sandberg and Stephen P. Niemira

Counsel for Respondent: David Wells, James Erwin, Timothy Noelker and Jeffrey N. Klar

Opinion Summary:

A Missouri general partnership, a law firm, entered a lease with 8182 Maryland Associates. Partner Sheehan withdrew before the partnership began occupancy, and he assigned his interest to the remaining partners. Other partners entered and left the partnership at various times. The law firm defaulted on its lease. 8182 Maryland sued various past and present firm general partners. The trial court granted various motions in favor of the partners, limiting recovery against them and awarding summary judgment. 8182 Maryland appeals.

AFFIRMED IN PART; REVERSED IN PART; REMANDED.

Court en banc holds: When a partner withdraws or when a new partner is admitted, the existing partnership dissolves and a new partnership is created. Although debts of the dissolved partnership may become debts of the new partnership, they remain the personal obligations of the old partnership's partners. The new partners of the newly created partnership are not personally liable for those debts.

Sheehan entered the lease. Though he withdrew from the firm, causing its dissolution, he remains personally liable on the lease by privity of contract unless an agreement to the contrary or some other defense is established. The court erred in granting him summary judgment.

At the times that new partners were admitted to the firm, new partnerships were created. These partnerships and partners were not bound by privity of contract to 8182 Maryland because neither partners nor partnerships of which they were members signed the lease or expressly assumed the lease obligations. They were presumed assignees of the lease and liable by privity of estate to 8182 Maryland. This liability was limited to the time they occupied the premises. No amount was established as due for the time these individuals were members of a partnership in possession of the premises. The court correctly granted them summary judgement.

Opinion Author: William Ray Price, Jr. Chief Justice

Opinion Vote: AFFIRMED IN PART; REVERSED IN PART; REMANDED. All concur.

Opinion:

Opinion modified by Court's own motion on April 25, 2000. This substitution does not constitute a new opinion.

I. Summary of Opinion

This case concerns the personal liability of withdrawing and incoming partners to a law firm under a long-term lease. Central to the resolution of the case is the principal that when a partner withdraws or when a new partner is admitted, the existing partnership dissolves and a new partnership is created. Although debts of the dissolved partnership may become debts of the new partnership, they remain the personal obligations of the old partnership's partners. The new partners of the newly created partnership are not personally liable for those debts.

A lease of real property involves liability that arises out of both privity of contract and privity of estate. In this case, Defendant Sheehan was a partner of Popkin, Stern, Heifitz, Lurie, Sheehan, Reby & Chervitz that entered into the lease agreement with 8182 Maryland Associates ("8182 Maryland"). Even though Sheehan withdrew from the firm, causing its dissolution, he remains personally liable on the lease by privity of contract unless an agreement to the contrary or some other defense is established. It was error for the trial court to grant him summary judgment.

At the various times Defendants Noelker, Burdette, Lageson, and Klar were admitted as partners to Popkin & Stern, new partnerships were created. These partnerships, and their respective partners, however, were not bound by privity of contract to 8182 Maryland because neither the partners nor any of the partnerships of which they were members signed the lease or expressly assumed the lease obligations. Although the new firms and their partners were presumed assignees of the lease and liable by privity of estate to 8182 Maryland, this liability was limited to the time period of their occupation of the premises. No amount was established as due for the time period these individuals were members of a partnership in possession of the premises. The trial court correctly granted them summary judgment.

II. Facts

On April 5, 1984, the Missouri general partnership of Popkin, Stern, Heifitz, Lurie, Sheehan, Reby & Chervitz, a law firm, entered into a lease agreement with 8182 Maryland. Defendant Richard J. Sheehan, a general partner of Popkin, Stern, Heifitz, Lurie, Sheehan, Reby & Chervitz, signed the lease along with the other thirteen general partners.¹ This lease was for the use of two floors and space in the parking garage of an office building that had yet to be constructed. The term of the lease was 120 months and commenced on the date the space was made "ready for occupancy" by 8182 Maryland. Rent was to be paid on the first day of each month. The lease was silent as to liability for incoming or withdrawing partners from Popkin, Stern, Heifitz, Lurie, Sheehan, Reby & Chervitz. The lease did, however, contain a clause requiring the written consent of the landlord for assignment of the lease.

In October of 1985, Sheehan withdrew from the partnership.² On December 31, 1985, Sheehan assigned his interest in the partnership to the remaining partners. Neither this document nor the partnership agreement was made a part of the record on appeal. In January of 1986, Sheehan's resignation became effective and the partnership formally adopted the shorter name of "Popkin & Stern." Apparently, the lease with 8182 Maryland was not expressly assigned in writing by the old partnership of Popkin, Stern, Heifitz, Lurie, Sheehan, Reby & Chervitz to the new partnership of Popkin & Stern, nor did Popkin & Stern assume the obligations of the lease in writing. On or before April 26, 1986, Popkin & Stern began occupancy of the leased premises.

At varying points between January 1, 1985, and January 1, 1986, Defendants Timothy Noelker, Douglas Burdette, Barbara Lageson, and Jeffrey Klar became partners of Popkin & Stern. There is no evidence in the record that any partnership agreement signed by these partners contained language concerning personal liability on the lease for incoming partners. None were asked to sign the lease agreement or any assumption agreement. It does not appear that the lease agreement was ever expressly assigned in writing to any of the new partnerships that resulted from the changing composition of the firm, or that any of these new partnerships assumed the obligation of the lease in writing. Noelker, Burdette, Lageson, and Klar all withdrew from the firm on or before December 1, 1989. None entered into a withdrawal agreement with any Popkin & Stern partnership or 8182 Maryland.

In September of 1991, Popkin & Stern defaulted on its lease obligation to 8182 Maryland and subsequently filed for bankruptcy in 1992. The third amended petition in this case, filed on January 13, 1993, alleged that 8182 Maryland suffered damages in the amount of $865,488.53 for past-due rent and the partnership's pro rata share of the building's operating expenses and parking garage expenses and $4,891,975.91 for the "present value of the Premises for the remainder of the stated term over the reasonable value of the Premises for the remainder of the stated term," a remedy the lease expressly allowed to the landlord upon the partnership's default. 8182 Maryland named as defendants all past and present general partners of the firm since April 4, 1984, but has dismissed thirty-six of those defendants.

Noelker and Klar filed partial motions for summary judgment seeking to limit any recovery of damages to partnership assets, not their individual assets. The trial court entered an order of partial summary judgment in favor of Noelker on January 22, 1993, and in favor of Klar on February 10, 1993. Later, Sheehan, Noelker, Klar, Burdette, and Harris filed separate motions for summary judgment requesting the circuit court dismiss, in all respects, the third amended petition against each of them. In separate orders, the trial court granted these motions in favor of all defendants. It is from the granting of these motions that 8182 Maryland appeals.

On February 20, 1998, the trial court found there was no reason for delay of plaintiff's appeal and certified its judgment as final under Rule 74.01(b).

III. Missouri Partnership Law

Partnership law in Missouri is governed by the Uniform Partnership Law (UPL). Sections 358.010 to 358.430, RSMo 1994. The UPL is nearly identical to the Uniform Partnership Act (UPA), adopted in most states. See 6 Uniform Laws Annotated. The UPL "shall be so interpreted and construed as to effect its general purpose to make uniform the law of those states which enact it." Section 358.040.4.

Central to the determination of personal liability for Defendant Sheehan and Defenants Noelker, Burdette, Lageson, and Klar is the legal effect the withdrawal of existing partners and the addition of incoming partners has on a partnership. The withdrawal of an existing partner dissolves the partnership. "The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business." Section 358.290; see also Warren v. Warren, 784 S.W.2d 247, 256 (Mo. App. 1989). Dissolution, however, is not a termination of the partnership business. "On dissolution the partnership is not...